Brief of the Case
In CIT vs. Bruhat Bangalore Mahanagar Palike, the Karnataka High Court on the issue of applicability of TDS provision held that section 194LA only applies to compulsory acquisition of land and not on voluntary acquisition. Further, the concept of tax deduction at source and depositing the same with the Revenue is where payment is made by cash, cheque, demand draft or any other similar mode. When there is neither the quantification of the sum payable in terms of money nor any actual payment is made in monetary terms, it would not be fair to burden a person with the obligation of deducting tax at source and exposing him to the consequence of such default.
Fact of the Case
Bruhath Bengaluru Mahanagara Palike [‘BBMP’] for discharging of its functions related to expansion of existing roads and construction of underpasses, etc. acquire lands either by compulsory acquisition of lands under the provisions of Land Acquisition Act, 1894 or any such other Act relating to compulsory acquisition of land or take land under Section 14B of the Karnataka Town and Country Planning Act, 1961 [‘KTCP Act’], where the land owner may voluntarily surrender his land free of cost and handover possession of such lands and in lieu thereof, Certificate of Development Rights [‘CDR’] were issued by the Authority in the form of additional floor area equal to 1½ times of area of land surrendered. In the present case also the land was taken under Section 14B of KTCP Act and not by way of any compulsory acquisition. As such, there was no cash transaction or payment made by BBMP to the land owner. Assessing officer, however, invoking the provision of section 194LA treated the respondent as ‘assessee-in-default’ for not deducting and depositing the required tax as per the provision and consequently, after quantifying the amount of value of land so surrendered by the land owner in favour of BBMP, directed that TDS at the rate of 10% under Section 194LA amounting to `2,41,91,128/- was to be deposited by the assessee. Appeal filed by the respondent-BBMP was dismissed by the CIT(A) which was challenged before the Tribunal and by a detailed and reasoned order, the tribunal allowed the appeal. Aggrieved by the same, Revenue has filed appeal before the Hon’ble High Court.
Substantial Question of Law
The Revenue raised the following substantial question of law-
“1. Whether, on the facts and circumstances of the case, the Tribunal is right in law in holding that the provisions of section 194LA of the I.T.Act are not applicable in the facts and circumstances of the case without appreciating the legal provisions of said section which mandates that income tax has to be deducted at source at time of payment of compensation, whether by cash or by draft/cheque or by any other mode (in the instant case it is in the form of DRC) attracts deduction of TDS and DRC in the hands of the owner is a valuable property and marketable commodity?”
Contention of the Appellant-Revenue
Since the land was acquired by BBMP, which could be valued in terms of money under Section 50C of I.T. Act, BBMP ought to have deducted 10% of such value and deposited the same, as required under Section 194LA of I.T. Act.
Contention of the Respondent-Assessee
Land was taken under Section 14B of KTCP Act i.e, under voluntary surrender by the owner and not by way of any compulsory acquisition hence provision of section 194LA not applicable.
Held by the High Court
The Hon’ble High court affirming the order of the Tribunal observed that a bare reading of section 194LA would make it clear that it would be applicable only in case of payment of any sum of money, as consideration on account of compulsory acquisition of any immovable property, for which payment is made in cash, cheque, demand draft or any other mode. In the present case, neither there was compulsory acquisition of the land, nor there was any process adopted for quantification or determination of value of land acquired by BBMP which was voluntarily surrendered by the land owner, for which CDRs were given to the land owner. Even otherwise, the Tribunal has rightly observed that the provisions of deducting tax at source and paying it over to the Government on behalf of the recipient of payment, is in the nature of vicarious liability. When there is neither the quantification of the sum payable in terms of money nor any actual payment is made in monetary terms, it would not be fair to burden a person with the obligation of deducting tax at source and exposing him to the consequence of such default. The Court explained the concept with the help of an example that If a land owner surrenders 10,000 sq.ft. of his land under Section 14B of KTCP Act and thus receives CDRs for 15,000 sq.ft. floor area, clearly, there would be no monetary transaction in such a case. Now, when the BBMP has not paid any money to the land owner by cash, cheque, demand draft or any other mode, the question would be as to wherefrom BBMP has to deposit any amount as tax deduction at source. It is only when certain payment is made to a party, then the party making the payment, deducts a particular percentage (which u/s.194LA is 10%), which has to be deducted and deposited with the Income Tax Department. If so, for example, Rs.1.00 crore is the amount of compensation to be paid to the land owner, then instead of paying the full amount to the land owner, the acquiring body would pay Rs.90.00 lakhs to the land owner and deduct Rs.10.00 lakhs and deposit the same as TDS amount. But if CDRs for 15,000 sq.ft. floor area is given to the land owner, then would the BBMP be required to issue 13,500 sq.ft. CDRs to the land owner and deposit 10% i.e., 1500 sq.ft. CDR with the Income Tax Department or would BBMP in such a situation be required to deposit a particular sum equivalent to 1500sq.ft. CDR, even when the entire CDR for 15000 sq.ft. floor area has been given to the land owner. When such payment in terms of money is made, the deduction is to be made by the person responsible to pay, and is to deposit the same with the Income Tax Department. When no payment is made by BBMP to the land owner in terms of money, such deduction is neither possible nor is conceived under Section 194LA. As such, in view of the aforesaid discussion, the High court was of the view that the order of the Tribunal was perfectly justified in law and no question of law arises in these appeals for determination by the Court. The appeals were accordingly dismissed.